The Business of Trading

The Role of the Regulators

Government regulators act as watchdogs, overseeing trading in the securities or futures industries. Although industry officials sometimes complain about too much oversight and regulators sometimes claim the industry isn’t providing enough, the check-and-balance tension between them helps to guard the public interest and maintain a level trading field for all investors and traders. Nearly everyone can agree that a balance of regulation is a good thing because its existence gives the public comfort and confidence that an outside source is guarding their interests.

In addition to providing or approving market regulations, the regulators also provide traders and consumers with valuable details about the status of brokers and firms, warnings about investment scams, advice on how to invest and other useful information. Their enforcement actions or threats of action reduce the negative aspects of the industry and help to keep it as “clean” as possible.

Regulators on the equities side include the Securities and Exchange Commission (SEC),; Federal Reserve, which controls margin requirements, and the National Association of Securities Dealers (NASD), Regulators for the futures industry include the Commodity Futures Trading Commission (CFTC),, and the National Futures Association (NFA), Generally, persons who handle your money must be registered with a regulatory agency.

The Securities Industry Association (SIA) and the Futures Industry Association (FIA),, are the national trade organization for these types of trading instruments.

How to Pick a Broker

The broker you select depends on the level of service you need. An experienced trader may get along well with a discount brokerage firm that merely executes orders at low commission rates whereas a beginning trader needing more help may be willing to pay higher commissions for the services of a full-service brokerage. There is no single, best answer to which broker is the best because there are many different types of traders and brokers.

Like any profession, there are differing degrees of quality in futures brokers and brokerage firms. Obviously, your first goal in selecting a brokerage firm should be finding a firm that is reputable. Your personal broker within that firm is like your employee because he/she will be working for you and you will be paying him/her. So you may want to interview them just as if you were hiring someone for a position.

A broker should be honest and have your best interests in mind – not a “churn and burn” pitch man who racks up big commission fees by cajoling you into trading all kinds of markets. Sometimes traders find it hard to blame themselves for unsuccessful trades, and the broker is an easy scapegoat. Certainly, there are a few “bad eggs” in the brokerage community, just as there are in every industry. However, the vast majority of futures brokers are honest and hard-working individuals who do have your best interests in mind when it comes to trading.

No matter whom you select as a broker, you have to take ultimate responsibility for your own trading decisions. At the same time, it is not an exaggeration to say that the ultimate success or failure of some traders lies in the hands of their brokers

Wednesday, August 10th, 2011 Uncategorized

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